Wheat chops sideways

It is becoming an all-too-familiar scenario. Wheat has a strong day and no follow-through. Or, we get the opposite – weakness with no follow-through. The trading range is now three months long, and longer term price direction remains as uncertain as ever.

Fundamentally, the buyers are clearly strong supporters at those trading range lows, but they’ve been unable to bring many other buyers into their camp before the funds load up on sell orders. So we continue to see very choppy price action, waiting for something to knock us out of the range.

Ukraine’s ban of all wheat exports as of November 15 was somewhat supportive of the market during the week. They announced that they will allow a total of 5 MMT of wheat exports, and to date have shipped approximately 3.8 MMT. Trade estimates suggest that they have actually sold about 5.5 MMT, so they are expected to have some minor defaults over the next couple of weeks.

Export sales surged last week with 572 TMT sold, the highest level in almost three months. We’ve watched as world trade has picked up over the last few weeks, and now the U.S. is getting a stronger foothold in the market. The deteriorating crop conditions in both Argentina and Australia are helping to spur business in the Northern Hemisphere.

That, and the quickly diminishing supplies from the European Union, are shifting some business to the U.S. The torrid pace of sales so far this marketing year from the European continent is 40% higher than last year at this time. They estimate that their stocks are at 14-year lows, and trade chatter suggests that offers from the EU are slowing. European analysts are already projecting their stocks/use ratio will reach a record low this season.

The Argentine harvest has started, and so far it is about 4% done. Government reports show disease problems, and weather forecasts show more rain on the way. It’s been a tough season for them, with abundant moisture early becoming too abundant later. We don’t expect the usual high-quality wheat from Argentina, which likely will lead to improving support for higher proteins down the road here in the U.S. and in Canada.

Australia’s harvest is just around the corner as well, and weather conditions haven’t improved to see any late-season yield improvements. Total production is projected around 20 MMT, down from their record 29.5 MMT last year.

As we near winter, the prospects of next year’s U.S. winter wheat are still fairly uncertain. Plantings nationwide were reported by USDA to be 81% completed, which is about normal. Emergence, however, was notably low at 49%, compared to the usual 56%. Acres may be up, but emergence and establishment are far from adequate before cold sets in.

Dry conditions are still well entrenched across the Great Plains up into the Northern Plains. According the U.S. Drought Monitor, 51% of the U.S. is still in severe to exceptional drought (the highest ratings they have). While that is actually down .5% from last week, the improvement came in the eastern Midwest, not the central Plains. The drought is now centered over Nebraska and reaches well into the Montana/North Dakota region, and down into Kansas. Time is running short for good growth before winter comes, and this is likely the reason that new crop futures are holding so well near their contract highs.